Lakshmi Machine Works Ltd., Coimbatore V. DCIT, Coimbatore

ITA 1478/CHNY/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 90719 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 1 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 27-05-2015
• Assessment Year: 1993-1994
• Appeal Filed On: 30-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N RENGARAJ
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Reasonable cause
• Section: 80HHC; 263

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , C B ENCH, CHENNAI . . , ' # , $ & BEFORE SHRI D.KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ./ I.T.A.NOS 1477 TO 1479/MDS/2014 ( / ASSESSMENT YEAR: 1992-93 TO 1994-95) M/S. LAKSHMI MACHINE WORKS LTD. PERIANAICKENPALAYAM S.R.K.V. POST COIMBATORE-641 020. VS THE DEPUTY COMMISSIONER OF INCOME TAX, SPECIAL RANGE-I. COIMBATORE. PAN:AAACL5244N ( /APPELLANT) ( /RESPONDENT/CROSS OBJECTOR) / APPELLANT BY : MR. R.VIJAYARAGHAVAN, ADVOCATE /RESPONDENT BY : MR. N.RENGARAJ, CIT /DATE OF HEARING : 27 TH MAY, 2015 /DATE OF PRONOUNCEMENT : 29 TH JULY, 2015 / O R D E R PER BENCH: THESE THREE APPEALS ARE FILED BY THE ASSESSEE AGAI NST COMMON ORDER OF THE COMMISSIONER OF INCOME TAX-II, COIMBATORE DATED 25.03.2014 PASSED UNDER SECTION 26 3 OF THE ACT FOR THE ASSESSMENT YEARS 1992-93 TO 1994-9 5. 2. THE APPEALS ARE FILED WITH THE DELAY OF THREE DA YS. THE ASSESSEE FILED AFFIDAVIT EXPLAINING REASONS FOR DE LAY IN FILING OF APPEAL AND PRAYS FOR CONDONATION OF DELAY. WE HA VE 2 ITA NOS. 1477 TO 1479/MDS/2014 PERUSED THE REASONS AND ARE SATISFIED THAT THERE IS A REASONABLE CAUSE FOR THE DELAY IN FILING OF THE APP EAL. IN THE INTEREST OF JUSTICE, WE CONDONE THE DELAY OF THREE DAYS IN FILING OF THE APPEAL. THE PETITION FOR CONDONATION OF DELA Y IS ALLOWED AND THE APPEAL IS ADMITTED. 3. THE ASSESSEE RAISED THE FOLLOWING COMMON GROUNDS IN ITS APPEALS:- (1) THE ORDER, U/S 263 OF THE INCOME TAX ACT, 1961, DIRECTING THE AO TO MODIFY THE ASSESSMENT ORDER BY RE-CALCULATING THE DEDUCTIONS U/S 80HHC AFTER REDUCING 90% OF THE REPAIRS AND SERVICE CHARGES FROM THE 'INCOME FROM BUSINESS & PROFESSION' TO ARRIVE AT THE 'PROFITS OF THE BUSINESS' AS PER SECTION 80HHC OF THE ACT' IS OPPOSED TO LAW AND UNSUSTAINABLE IN THE FACTS AND THE CIRCUMSTANCES OF THE CASE. (2) THE LEARNED CIT-II, COIMBATORE, HAS FAILED TO APPRECIATE THAT THE FACTS BEFORE THE SUPREME COURT, IN THE CASE OF CIT VS RAVINDRANATHAN NAIR (2007)295 ITR 228, WAS DISTINGUISHABLE WITH THE FACTS OF THE CASE OF THE APPELLANT. (3) FOR THESE AND OTHER ADDITIONAL GROUNDS OF APPEAL THAT MAY BE ADDUCED AT THE TIME; OF HEARING, THE ORDER OF THE COMMISSIONER OF INCOME TAX-II, COIMBATORE, IS NOT IN CONFORMITY WITH THE DIRECTIONS OF THE HON'BLE HIGH COURT OF JUDICATURE AT MADRAS, IN THE FACTS AND THE CIRCUMSTANCES OF THE CASE. 3 ITA NOS. 1477 TO 1479/MDS/2014 4. COUNSEL FOR THE ASSESSEE AT THE OUTSET SUBMITS T HAT THE ISSUE IN THESE APPEALS IS AS TO WHETHER ENTIRE 90% OF THE AMOUNTS RECEIVED TOWARDS REPAIRS AND SERVICE CHARGE S SHOULD BE EXCLUDED FROM PROFITS OF THE BUSINESS AS PER CLAUSE (BAA) OF EXPLANATION TO SECTION 80HHC OF THE ACT O R ONLY 90% OF SUCH NET INCOME SHOULD BE EXCLUDED IS THE S UBJECT MATTER OF THESE APPEALS. THE COUNSEL SUBMITS THAT T HIS ISSUE HAS BEEN NOW DECIDED BY THE HONBLE SUPREME COURT I N THE CASE OF ACG ASSOCIATED CAPSULES (P) LTD. VS. CIT (2 47 CTR 372). THEREFORE, PLACING RELIANCE ON THE ABOVE SAI D DECISION, COUNSEL SUBMITS THAT THE MATTER MAY BE SENT BACK TO THE ASSESSING OFFICER WITH A DIRECTION TO FOLLOW THE SA ID DECISION OF THE SUPREME COURT AND RECOMPUTE THE DEDUCTION ACCORDINGLY. 5. DEPARTMENTAL REPRESENTATIVE VEHEMENTLY SUPPORTS THE ORDER OF THE COMMISSIONER OF INCOME TAX IN REDUCIN G ENTIRE 90% OF REPAIRS AND SERVICES CHARGES FROM THE INCOME FROM BUSINESS AND PROFESSION TO ARRIVE AT PROFITS OF BUS INESS IN COMPUTING DEDUCTION UNDER SECTION 80HHC OF THE ACT WHICH 4 ITA NOS. 1477 TO 1479/MDS/2014 WAS BASED ON THE DECISION OF THE HONBLE SUPREME CO URT IN THE CASE OF CIT VS. K. RAVINDRANATHAN NAIR (295 ITR 228). 6. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHOR ITIES AND THE DECISIONS RELIED ON. BRIEF FACTS ARE THAT A SSESSMENTS FOR THE ASSESSMENT YEARS 1992-93 TO 1994-95 WERE COMPLETED ON 17.2.93, 21.9.94 AND 27.3.95 RESPECTI VELY. IT WAS FOUND THAT DEDUCTION UNDER SECTION 80HHC OF THE ACT HAS BEEN ALLOWED IN EXCESS OF THE ELIGIBILITY. HENC E, ORDER UNDER SECTION 263 DATED 19.3.96 WAS PASSED, WHEREIN ASSESSING OFFICER WAS DIRECTED TO EXCLUDE 90% OF RE PAIRS & SERVICE CHARGES FROM PROFITS AND GAINS OF BUSINESS OF THE ASSESSEE AS PER EXPLANATION (BAA) TO SECTION 80HHC. THE ORDERS, THUS PASSED BY THE CIT, WERE APPEALED AGAIN ST BY THE ASSESSEE BEFORE THIS TRIBUNAL WHICH IN TURN SET ASI DE THE ORDER OF THE CIT UNDER SECTION 263 AND RESTORED THE ORIGINAL ORDERS PASSED BY THE ASSESSING OFFICER. THE DEPARTM ENT FILED APPEAL BEFORE THE HON'BLE HIGH COURT OF MADRAS AGAINST THE ORDER OF ITAT, CHENNAI. WHILE DISPOSIN G THE APPEALS IN TAX CASE APPEAL NOS.393 TO 395 OF 2004 BY THE HON'BLE HIGH COURT, MADRAS. VIDE THEIR ORDER DATED 12.7.2011 5 ITA NOS. 1477 TO 1479/MDS/2014 HAVE SET ASIDE THE ORDER OF THE ITAT, CHENNAI AND R EMITTED THE MATTER BACK TO THE FILE OF THE CIT TO CONSIDER THE CLAIM OF THE ASSESSEE IN THE LIGHT OF EXPLANATION IN SUB-SEC TION (BAA) TO SECTION 80HHC OF THE IT ACT AND PASS APPROPRIATE ORDERS THEREON ON MERITS IN VIEW OF THE DECISION OF THE A PEX COURT IN THE CASE OF CIT VS. K. RAVINDRANATHAN NAIR (2007) 2 95 ITR 228 (SC). THE HON'BLE HIGH COURT DID NOT AGREE WIT H THE CONTENTION OF THE ASSESSEE'S COUNSEL THAT THE COMMI SSIONER OF INCOME TAX CONCERNED HAS NOT STATED IN HIS ORDER , AS TO HOW THE ASSESSMENT ORDER WAS ERRONEOUS AND PREJUDIC IAL TO THE INTERESTS OF THE REVENUE, AS THE HIGH COURT WAS OF THE VIEW THAT THE ISSUE IN QUESTION HAS TO BE UNDERSTOO D IN THE FACTS AND CIRCUMSTANCES OF SAID CASE. THE HON'BLE HIGH COURT FURTHER HELD THAT IN THE FACTS AND CIRCUMSTAN CES OF THE PRESENT TAX CASE APPEAL, THE CONTEXT OF EXPLANATION (BAA) TO SECTION 80HHC OF THE ACT HAS BEEN CLARIFIED BY THE DECISION OF THE APEX COURT, IN CASE OF CIT VS. K.RAVINDRANAT HAN NAIR, REPORTED IN (2007) 295 ITR 228 (SC). THE ORDER OF THIS TRIBUNAL WAS SET ASIDE AND THE MATTER WAS REMITTED BACK FOR CONSIDERATION OF THE CLAIM IN THE LIGHT OF THE EXPLANATION (BAA) UNDER SECTION 80HHC. THE COMMIS SIONER 6 ITA NOS. 1477 TO 1479/MDS/2014 OF INCOME TAX PLACING RELIANCE ON THE DECISION OF T HE HONBLE SUPREME COURT IN THE CASE OF CIT VS. K. RAVINDRANA THAN NAIR (SUPRA) WHEREIN IT WAS HELD THAT LABOUR CHARG ES HAVE TO BE INCLUDED IN THE TOTAL TURNOVER AND 90% OF SUCH L ABOUR CHARGES HAVE TO BE EXCLUDED IN TERMS OF CLAUSE (BAA ) OF EXPLANATION TO SECTION 80HHC OF THE ACT, HELD THAT IN ASSESSEES CASE 90% OF REPAIRS AND SERVICES CHARGES SHOULD BE EXCLUDED. 7. HOWEVER, AN IDENTICAL ISSUE HAS COME UP BEFORE T HE HONBLE SUPREME COURT (THREE JUDGES) IN THE CASE OF ACG ASSOCIATED CAPSULES (P) LTD. VS. CIT (247 CTR 372) AND THEIR LORDSHIPS DISTINGUISHING THE DECISION OF THEI R LORDSHIPS IN THE CASE OF CIT VS. K. RAVINDRANATHAN NAIR (295 ITR 288) HELD THAT WHILE COMPUTING DEDUCTION ALLOWABLE UNDER SECTION 80HHC OF THE ACT 90% OF NET INCOME ONLY HAVE TO BE EXCLUDED IN TERMS OF CLAUSE (BAA) OF EXPLANATION TO SECTION 80HHC OF THE ACT. THEIR LORDSHIPS IN PARA 14 OF TH E JUDGEMENT DISTINGUISHED THE DECISION IN THE CASE O F K.RAVINDRANATHAN NAIR (SUPRA) OBSERVING AS UNDER:- 7 ITA NOS. 1477 TO 1479/MDS/2014 14. ON A PERUSAL OF THE JUDGEMENT OF THE HIGH COU RT IN CIT VS. ASIAN STAR CO.LTD. (SUPRA), WE FIND THAT THE REASON WHICH WEIGHED WITH THE HIGH COURT FOR TAKING A DIFFERENT VIEW, IS THAT RENT, COMMISSION, INTEREST AND BROKERAGE DO NO T POSSESS ANY NEXUS WITH EXPORT TURNOVER AND, THEREFO RE, THE INCLUSION OF SUCH ITEMS IN THE PROFITS OF THE BUSIN ESS WOULD RESULT IN A DISTORTION OF THE FIGURE OF EXPORT PROF ITS. THE HIGH COURT HAS RELIED ON A DECISION OF THIS COURT IN CIT VS. K. RAVINDRANATHAN NAIR (2007) 213 CTR (SC) 227: (2007) 295 ITR 228(SC) IN WHICH THE ISSUE RAISED BEFORE TH IS COURT WAS ENTIRELY DIFFERENT FROM THE ISSUE RAISED IN THIS CASE. IN THAT CASE, THE ASSESSEE OWNED A FACTORY IN WHICH HE PROCESSED CASHEWNUTS GROWN IN HIS FARM AND HE EXPORTED THE CASHEWNUTS AS AN EXPORTER. AT THE SAME TIME, THE ASSESSEE PROCESSED CASHEWNUTS WHICH WERE SUPPLIED TO HIM BY EXPORTERS ON JOB WORK BASIS AND HE COLLECTED PROCESSING CHARGES FOR THE SAME. HE, HOWE VER, DID NOT INCLUDE SUCH PROCESSING CHARGES COLLECTED O N JOB WORK BASIS IN HIS TOTAL TURNOVER FOR THE PURPOSE OF COMPUTING THE DEDUCTION UNDER S. 80HHC(3) OF THE AC T AND AS A RESULT THIS TURNOVER OF COLLECTION CHARGES WAS LEFT OUT IN THE COMPUTATION OF PROFITS AND GAINS OF BUSINESS OF THE ASSESSEE AND AS A RESULT NINETY PER CENT OF THE PRO FITS OF THE ASSESSEE ARISING OUT OF THE RECEIPT OF PROCESSI NG CHARGES WAS NOT DEDUCTED UNDER CLAUSE (1) OF THE EXPLANATION (BAA) TO S. 80HHC. THIS COURT HELD THAT THE PROCESSING CHARGES WAS INCLUDED IN THE GROSS TOTAL INCOME FROM CASHEW BUSINESS AND HENCE IN TERM S OF EXPLANATION (BAA), NINETY PER CENT OF THE GROSS TO TAL INCOME ARISING FROM PROCESSING CHARGES HAD TO BE DEDUCTED UNDER EXPLN. (BAA) TO ARRIVE AT THE PROFIT S OF THE BUSINESS. IN THIS CASE, THIS COURT HELD THAT THE PR OCESSING CHARGES RECEIVED BY THE ASSESSEE WERE PART OF THE BUSINESS TURNOVER AND ACCORDINGLY THE INCOME ARISIN G THEREFROM SHOULD HAVE BEEN INCLUDED IN THE PROFITS AND GAINS OF BUSINESS OF THE ASSESSEE AND NINETY PER CE NT OF THIS INCOME ALSO WOULD HAVE TO BE DEDUCTED UNDER EX PLN. (BAA) TO S. 80HHC OF THE ACT. IN THIS CASE, THIS CO URT WAS NOT DECIDING THE ISSUE WHETHER NINETY PER CENT DEDU CTION IS TO BE MADE FROM THE GROSS OR NET INCOME OF ANY OF T HE RECEIPTS MENTIONED IN CI. (1) OF THE EXPLN. (BAA}. 8. AS COULD BE SEEN FROM THE OBSERVATIONS OF THE HO NBLE SUPREME COURT, THE ISSUE BEFORE THEIR LORDSHIPS IN THE CASE OF 8 ITA NOS. 1477 TO 1479/MDS/2014 RAVINDRANATHAN NAIR(SUPRA) WAS ONLY WHETHER THE LAB OUR CHARGES RECEIVED BY THE ASSESSEE SHALL BE INCLUDE D IN THE TOTAL TURNOVER OF THE ASSESSEE AND ALSO 90% OF SUCH INCOME SHOULD BE EXCLUDED FOR THE PURPOSE OF COMPUTING REL IEF UNDER SECTION 80HHC OR NOT. THEIR LORDSHIPS FURTHER HELD THAT IN THE CASE OF RAVINDRANATHAN NAIR THEIR LORDSHIPS WERE NOT DECIDING AS TO WHETHER 90% OF DEDUCTION SHOULD BE M ADE FROM GROSS RECEIPTS OR NET RECEIPTS IN TERMS OF CLA USE(BAA) OF EXPLANATION TO SECTION 80HHC OF THE ACT. 9. IN THE CASE BEFORE US, THE ISSUE IS NOT ON WHETH ER THE REPAIR AND SERVICES CHARGES ARE TO BE INCLUDED IN T HE TURNOVER OR NOT. THE ISSUE IS WHETHER 90% OF SUCH REPAIR AN D SERVICE CHARGES SHOULD BE EXCLUDED IN TERMS OF CLAUSE (BAA) OF EXPLANATION TO SECTION 80HHC OF THE ACT. IN THE CA SE OF ACG ASSOCIATED CAPSULES (P) LTD.(SUPRA), THE HONBLE SU PREME COURT HELD THAT ONLY NINETY PER CENT OF THE NET AMO UNT OF ANY RECEIPT OF THE NATURE MENTIONED IN CLAUSE (1) OF EX PLANATION (BAA) WHICH IS ACTUALLY INCLUDED IN THE PROFITS OF THE BUSINESS IS TO BE DEDUCTED FROM THE PROFITS FOR DETERMINING PROFITS OF THE BUSINESS UNDER EXPLANATION (BAA) TO SECTION 80 HHC OF 9 ITA NOS. 1477 TO 1479/MDS/2014 THE ACT. THEREFORE, IN OUR VIEW, THE DECISION IN TH E CASE OF CIT VS. K. RAVINDRANATHAN NAIR (SUPRA) HAS NO APPL ICATION TO THE FACTS OF THE CASE AND THE APPROPRIATE DECISION TO THE FACTS OF THIS CASE IS THE LATTER DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF ACG ASSOCIATED CAPSULES (P) LTD.(SUPRA) . IN THESE CIRCUMSTANCES, IN OUR VIEW, THE ORDER OF THE COMMISSIONER OF INCOME TAX PASSED UNDER SECTION 263 HOLDING THAT 90% OF THE GROSS REPAIR AND SERVICES C HARGES ARE TO BE EXCLUDED IN TERMS OF CLAUSE (BAA) OF EXPLANAT ION TO SECTION 80HHC IS BAD IN LAW. ACCORDINGLY, WE QUASH THE IMPUGNED ORDERS OF THE COMMISSIONER OF INCOME TAX P ASSED UNDER SECTION 263 OF THE ACT FOR THE ASSESSMENT YEA RS 1992- 93 TO 1994-95. 10. IN THE RESULT, APPEALS OF THE ASSESSEE ARE ALLO WED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH JULY, 2015. SD/- SD/- ( . $ ) ( & () ) (D.KARUNAKARA RAO) (CHALLA NAGENDR A PRASAD ) + / ACCOUNTANT MEMBER ( + / JUDICIAL MEMBER ( /CHENNAI, - /DATED 29 TH JULY, 2015 SOMU /0 10 /COPY TO: 10 ITA NOS. 1477 TO 1479/MDS/2014 1. APPELLANT 2 RESPONDENT 3. 2 () /CIT(A) 4. 2 /CIT 5. 0 6 /DR 6. /GF .